George Osborne is braced for a new political backlash over bank bonuses, as state-controlled Royal Bank of Scotland prepares to pay as much as 250 million pounds ($393 billion) to staff at an investment banking division heavily implicated in the Libor-rigging scandal.
The chancellor's discomfort has been amplified by the fact that the bonus round comes just as RBS prepares to settle with US and UK regulators over the Libor scandal with a fine expected to top 500 million pounds. The taxpayer will effectively be paying RBS investment bankers about 250 million pounds in bonuses, while simultaneously footing the bill for the bank's abuse of Libor over a number of years up to 2010.
The majority of the Libor fine will be paid to US authorities. Although negotiations are not yet complete, those close to the talks say the British taxpayer could end up sending a check for more than 400 million pounds across the Atlantic. The bank, which is 82 per cent state-owned, is expected to pay about 100 million pounds to the Financial Services Authority.
One ally of Mr Osborne said the bonus row would not be "as high-octane" as in 2012, when controversy over chief executive Stephen Hester's proposed 1 million pound bonus raged for weeks, but conceded there would inevitably be a backlash. Mr Hester eventually turned down last year's 1 million pound bonus, and has also refused any payout this year after an IT blow-up that left millions of customers unable to use their accounts.
The chancellor accepts the need to pay bonuses at RBS to keep the bank competitive, and a Treasury spokesman said RBS was dealing with "legacy issues".